DBS Vickers Research, Jan 15
UNITED Envirotech has won another engineering, procurement and construction (EPC) contract worth 250 million yuan (S$52.6 million) after securing a 160 million-yuan BOT (build, operate, transfer) agreement two days ago. It has clinched about 877 million yuan of EPC contracts so far in FY2014.
More order wins are possible as 500 million-600 million yuan of contracts are in advanced bidding stages. Based on new-win assumption of 800 million yuan (from 400 million yuan previously) in FY2015 and 12-18 months' completion timeline, we estimate that EPC's revenue could almost double to a record high of S$199 million in FY2015. This is 63 per cent higher than our previous EPC sales forecast of S$122 million ...
Subsequent to (1) our earnings upgrade for EPC; (2) a valuation alignment to EPC peer multiple of 15 times from 12 times previously; and (3) inclusion of Memstar's value, we derive a sum-of-the-parts target price of S$1.18 based on full conversion of KKR's convertible bonds.
Our fair value translates into 22 times FY2015 fully-diluted EPS including Memstar's earnings. Upgrade to "buy" for 13 per cent upside. Target price is raised to S$1.18.
BUY
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